BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 1337 - Wyland
Introduced: February 19, 2010
Hearing: April 14, 2010 Fiscal: Yes
SUMMARY: Repeals 10% Wage Withholding Increase
EXISTING LAW requires the Franchise Tax Board (FTB) to
annually provide to the Employment Development Department
(EDD) wage withholding tables for employers to use when
calculating employee withholding. Taxpayers reconcile
withholding amounts with actual tax due when they file tax
returns, usually receiving a refund if withholding exceeds
tax, and remitting a payment when tax due exceeds
withholding. The Legislature increased the wage
withholding tables by 10% beginning on November 1, 2010
(ABx4 17, Committee on Budget).
THIS BILL repeals the 10% wage withholding effective
January 1, 2011.
FISCAL EFFECT:
According to FTB, SB 1337 results in revenue losses of
$1.4 billion in 2010-11, $160 million in 2011-12, and $70
million in 2012-13.
COMMENTS:
A. Purpose of the Bill
SB 1337 will eliminate the 10% interest-free loan
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enacted under ABX4 17. The increased withholding amounts
to a forced interest-free loan from taxpayers to the State
of California. Californians are already combating some of
the highest taxes in the country and in this dire economy,
the last thing people need is government taking even more
from their wallets. Lawmakers need to stop these budgeting
gimmicks that further burden Californians and instead spend
their time crafting an environment that will help create
jobs and grow the economy.
B. Taking the Under
To partially address the state's fiscal difficulties,
the Legislature increased tax withholding last year in ABx4
17. While changing withholding does not change the tax
rates, bases, or computations, the measure did reduce the
take-home pay of most wage earners in California. However,
ABx4 17 was not solely a fiscal management tool; instead,
the Legislature was concerned about under withholding,
resulting in large tax bills when filing the return,
especially individuals with significant non-wage income or
income from a spouse. EDD's form DE4 states that using the
same number from the federal withholding form, the W4, may
result in significant under withholding, although this risk
may be lessened given income tax increases effective for
the 2009 tax year which were enacted in February, 2009.
C. Fighting the Law and Winning
While SB 1337 would repeal the increased withholding
for all Californians, individuals who believe that ABx4 14
resulted in over withholding can change their withholding
to more accurately reflect their tax Taxpayers may
request Form DE4 from the employers, change their
withholding, and return the form to their employers, who in
turn submit it to EDD. However, taxpayers may be subject
to a $500 fine if they lack reasonable basis for a
withholding that results in less tax being withheld than
that which is properly allowable.
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Support and Opposition
Support:Howard Jarvis Taxpayers' Association, National
Tax Limitation Committee, California Small Business
Association
Oppose: None received.
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Consultant: Colin Grinnell